News

Study: Monthly Sales Quotas Actually Hurt Profits Over Long Term

By:

Chris Gaetano

Published Date:

Aug 28, 2017

A recent study of 9.8 million sales transactions from 151 U.S. companies over nine consecutive quarters from 2014 to 2016 has found that last-minute rushes to meet sales figures actually costs companies more than initial numbers would imply, according to the Harvard Business Review. The study found that, yes, sales people close three times as many deals at the end of the month, which would imply that setting monthly goals is a great way to boost revenue. However, the study also found that they lose 11 times as many potential deals during the same time period. So while the numbers favor monthly quotas in absolute terms, if taken as a percentage of overall deal attempts, sales staff are actually much less effective: 51 percent. Further, the study said that the deals made at the end of the month are 34.5 percent lower than average, indicating that the last-minute rush to meet goals leads staff to give deep discounts.

The study calls to mind other instances where aggressive sales targets led to behavior that ultimately harmed the company. Electronics company Toshiba, chip-maker MagnaChip, and grocery chain Tesco all faced serious fraud issues linked to high-pressure sales goals demanded by corporate leadership. The Consumer Financial Protection Bureau, in CFPB Compliance Bulletin 2016-03, noted that incentives can, when properly implemented and monitored, benefit all stakeholders and the marketplace as a whole. However it warned that they can also be a vector for consumer risk and fraud, especially if they are part of a high-pressure culture of unrealistic targets. Poorly-designed programs, said the bulletin, can create incentives for workers to pursue overly aggressive marketing, sales, servicing or collection tactics (and, no doubt, accounting tricks would fall under these results too).